Dollar Falls as U.S. Government Shutdown Sparks Selloff
The dollar index, which tracks the greenback against six major currencies, slipped 0.2% on Wednesday to 97.61. That small move masked a broader concern: the greenback is about 10% weaker for 2025 so far, a pace that would mark its worst annual performance since 2003 when it slid about 14.6%. The latest retreat comes as markets pivot to questions about the U.S. economy’s resilience in the face of a running political stalemate.
What the numbers say about USD trajectory
Analysts note that a shutdown tends to weigh on the U.S. currency, especially against safe-haven peers such as the yen, euro and Swiss franc. Yet observers also warn that the immediate effect depends on how quickly lawmakers can reach a funding deal. In this cycle, the dollar is flirting with a broader narrative of political uncertainty, which could apply persistent pressure on the USD if the stalemate drags on. Still, a rapid resolution could cap any additional downside and keep the dollar in range with recent months, according to traders and strategists.
Analyst insight: historical patterns and current risk
FX analyst Daniel Tobon of Citi summarized the dynamic: historically, shutdowns have coincided with weaker USD, mainly versus safe-haven currencies. The current market narrative, which already reflects Biden administration and congressional tensions, could push the USD lower if risk sentiment remains fragile. However, Tobon cautioned that markets might limit follow-through if a resolution comes quickly, leaving the currency at rather familiar levels in the near term.
Gold and other assets respond to the uncertainty
The uncertainty surrounding Washington’s funding process helped drive gold futures to a fresh milestone, trading above $3,900 an ounce as traders sought safety in bullion amid fiscal risk. Gold’s gains highlight a broader trend: when political risk spikes, some investors rotate into assets considered stores of value. The reaction in gold also underscores the USD’s sensitivity to U.S. political headlines, even as other asset classes wrestle with their own headwinds.
What comes next for traders and policy makers
Looking ahead, the key question is whether lawmakers can agree on a temporary funding bill or a longer-term budget path. A quick agreement could limit further downside for the dollar and quell volatility across markets. If the shutdown persists, traders may continue to price in additional political risk, potentially pushing the USD toward new lows for the year and sustaining upward pressure on gold and other safe-haven assets. In the broader context, investors will also monitor any shifts in expectations around fiscal policy and tax credits—such as proposals to extend enhanced Obamacare subsidies—that could influence risk appetite and currency flows.
In the near term, markets appear to be balancing two forces: the historic tendency for USD softness during shutdown episodes and the possibility of a rapid political fix that would cap sustained weakness. For now, the dollar’s path remains tethered to headlines out of Washington and the speed with which a funding solution—or a lack thereof—unfolds on trading desks worldwide.
